The Essential Epiphany

Chief Executive (U.S.), September 2006 | Go to article overview

The Essential Epiphany


What it's like working every day in a "Harvard Business School" case study.

Before he could transform the company, Lewis Campbell had to transform himself. The 60-year-old native of Winchester, VA, who became Textron's CEO in 1998, talks about why it became necessary and what he had to do to make it happen.

Why transform Textron?

In the 1990s, we acquired a lot of companies. At one point we had sold off $5 billion and had acquired $5 billion worth in revenues, and we were only a $10 billion company. Think about the turn! We were acquiring primarily private companies and bought them at pretty good prices because we were known as the "friendly acquirer." Over time this meant that we inherited many redundant functions such as payroll systems, benefit programs, data centers and research facilities. Our ability to create sustainable value was being eroded.

When I became CEO in July 1998 we enjoyed six successful quarters, but afterwards it was pretty darn obvious that our business model was no longer working. We didn't know why, because the earnings were still coming. Quarterly EPS year-to-year improvement when I came here was 8 or 9 percent, and at the peak it was 15 or 16 percent with no restructuring either. But too much of our EPS depended on acquisitions, and not enough on return on invested capital. We woke up. Our return on invested capital was not quite as good as it should have been. After a strategic offsite meeting with the board in September 2002 directors were asking the question, "Lewis, what is your vision of the company?" I said, "Well, I want to do this and this and this." They said that's not compelling and they were right.

As the board kept hammering me to deliver a vision for the company, I began writing one, but found it wasn't easy. Ultimately we want to be a premier multi-industry company recognized for its strong local brands, powerful enterprise processes and talented people.

We decided that our strategy was to develop a core competency-actually two core competencies: portfolio management and enterprise management-and to be recognized for it. Enterprise management was all about using the network enterprise and shared services. For example, at one time we had 88 data centers, we need 2; had 154 healthcare plans, we need one; we had 1,800 payroll systems, probably didn't need too many of those either.

What was the epiphany that gave you the solution to change the company from a disparate collection of businesses to an operationally integrated enterprise?

At the outset I had not a clue in the world what to do. Yes, I had some ideas, but I hadn't gone to the beach, like some guys do, to sit for 37 days until the inner light bulb turns on. We spent the next year and a half with our executive leadership team working through a foundation of transformation. We decided that we were going to have a network enterprise, one that would leverage the size of the company and become ruthlessly consistent without exception.

But the most surprising insightsomething I should have figured out earlier-was that the secret weapon of transformation, the big lesson we had to learn, is that people really need to believe it's good for them, otherwise it will not be successful. As a CEO, I also came to understand that transformation has nothing to do with how "stupid" the organization is or about how "bad" the prior CEO was or about a particular planning process. It's really about me. I realized that I had some bad theories in my head that prevented me from being what I needed to be in the situation I found myself in. If I didn't change, I had no chance to win.

The real battle any CEO has is not only how well one does while in the job, but how well the company performs five years after one leaves. Look at companies who were on a great trajectory. The CEO retires, great guy follows him, boom, nothing happens in shareholder value for five years.

So if you ask what motivates me the most, it is creating a sustainable product development and reinvention process. …

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